Weekly Digest - INVESTEC
Please find the latest edition of Weekly Digest attached.
Last week, US markets rose by 1.6% in sterling terms and the world ex-America rose by 3.5%. In Europe, the European Commission proposed a seven year budget that includes a €750 billion post-COVID recovery fund and there have been further moves to ease lockdowns, with Germany allowing its citizens to travel abroad from 15th June. The Vix volatility index ended the week at 27.5, a half point lower than the previous week – still elevated relative to “normal”, but edging progressively lower. On Friday, Donald Trump held a press conference to announce fresh sanctions on China, which proved to be less aggressive than many were expecting. Mr Trump said he would ban some Chinese nationals from entering the US and keep a closer eye on the practices of Chinese firms. The President’s announcement also included a pledge to revoke special trade privileges for Hong Kong.
The burden of new infections has shifted to emerging markets: seventeen of the twenty highest readings for the seven-day average number of infections come from emerging markets (with the US, UK and Canada the exceptions)
One of the chief drivers behind the recovery in financial markets has been global central banks offering support. For the first time on record the PPP GDP weighted global monetary policy rate has turned negative.
By several measures, China is back to normal. Chinese coal consumption is now up on this time last year and car sales are flat.
Whilst unemployment continues to increase and be extremely painful, overall in the western world, savings rates have jumped and may encourage a bounce back in consumer spending (although incomes are likely to drop).
May is going to mark the first month ever that Chinese airlines have operated more passenger flights than their US counterparts.
The Week Ahead
Despite the US-China tensions, Asian markets closed broadly higher today. Some encouragement is being taken from China’s manufacturing data (released yesterday), which showed the economy continues on its road to recovery but at a steady pace. Australia, Japan and Korea saw readings of 44, 38.4 and 41.3, broadly unrevised from mid-month readings, suggesting no surprises and no further deterioration – consistent with the bottom of the global economic “U” being hit in the second half of May.
In the UK, Chancellor Rishi Sunak announced changes to the government’s most expensive measure, the Coronavirus Job Retention Scheme (CJRS). From August, employers must pay national insurance contributions and pension contributions. Employers would then be asked to pay 10% of furloughed workers’ wages in September, rising to 20% in October. The CJRS was extended to end-October earlier in May, from the previous deadline of end-June. Another deadline potentially set to be extended from end-June is the decision point for extending the Brexit transition period. The next round of Brexit talks begins tomorrow. Reports suggest the government is prepared to continue with talks through the summer rather than switching to no-deal preparations.